SIR Mervyn King has admitted that the Bank of England was 'late in the game' in dealing with the economic recovery, claiming he should have 'shouted warnings' over the banking collapse.

The Bank of England governor conceded the Bank of England should have "shouted from the rooftops" that banks had been allowed to borrow and lend too much.

Sir Mervyn admitted the Bank had been "late to the game" in
understanding how fragile the banking system was, but insisted the
institution was not alone in failing to grasp the scale of the crisis.

The UK suffered a shock return
to recession after official figures showed the economy shrank in the
first quarter of this year, following a contraction in the final three
months of 2011.

Sir King said: "We were certainly late to the game in understanding the scale of
the fragility in the banking system and the potential consequence when
those risks materialised.

"But we were in good company. It was not the
case that people were saying to us, 'gosh, you really ought to raise
interest rates to slow down what's happening in the banking sector'.

I think a reasonable view would be that we would start to see steady, slow recovery

Sir Mervyn King, Governor of the Bank of England

"I remember that in the 10
years before the crisis hit, the UK had higher interests rates than any
other G7 country for nine and a half of those 10 years, and most of the
comment about what we did was to press us to lower interest rates."

But in a boost for Chancellor George Osborne, Sir King also claimed there were 'signs of recovery' for the British economy despite having slid back into recession.

He said: "I think a reasonable view would be that we would start to see steady, slow recovery coming during the course of the year."

Labour has claimed it is a recession "made in Downing Street", but Sir Mervyn backed the coalition's approach to tackling the budget deficit.

He said: "The strategy was that there would be a gradual move towards reducing the budget deficit over five years, that there would be an acceptance of the significant fall in sterling of 25% and there would be a rebalancing of the economy."

"We had to rebalance our economy because we had a trade deficit. So this was an absolutely textbook response to the situation.

"If it had not been for the squeeze on real take-home pay being exacerbated by the rise in energy and food prices then I think we would have seen some growth."